One-Step-Removed, or `Economic,' Nexus: Not All Contacts With States Are Constitutionally Equal

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Charolette Noel and Karen H. Currie

 

Charolette Noel, Esq., is a partner in the Dallas office of Jones Day. Karen H. Currie, Esq., is an associate in the Dallas office of Jones Day. The views set forth in this article are the personal views of the authors and do not necessarily reflect the opinions of Jones Day, its clients, or any other organizations with which the authors are associated.

Who would dispute that businesses should be able to determine which states have authority to impose taxes on their property and/or activities? Theoretically, that determination should become easier over time as courts interpret and more clearly define the federal constitutional limits of state taxation. In practice, however, the determination is not easy and can be quite burdensome.

It has been almost 20 years since the U.S. Supreme Court issued its most recent decision interpreting the level of in-state activity, or "nexus," required for a nondomiciliary company to be subjected to state taxation.1 Since the decision in Quill, numerous state courts2 have issued various, often inconsistent, rulings on the type of contacts that satisfy the "substantial nexus" requirement for taxation.3This area of law has been called "nebulous at best" and "something of a `quagmire.' "4 

In response to significant financial pressures of recent years, state tax administrators have adopted more aggressive nexus views to expand their tax bases, often seeming to assert taxable nexus if a taxpayer merely casts a shadow in the state. State legislatures similarly have adopted new statutes that expand their tax bases to include more out-of-state businesses by taking a more aggressive "economic nexus" approach.5 At the same time, state courts have allowed the pendulum of taxable nexus to swing broadly, relegating to limited circumstances the bright-line "physical presence" requirement for taxation established by the Supreme Court in Quill.6 

These recent expansions of taxation make it difficult for anyone to know the limit of state taxing authority. Perhaps a former assistant attorney general speaking at a university-sponsored state tax symposium a couple of years ago said it best—until states are told that they have crossed the constitutional line, they will not know the bounds of their authority. Until the U.S. Supreme Court agrees to review a state court's nexus determination or unless the U.S. Congress decides to legislate taxation of interstate commerce, taxpayers and practitioners are left with a labyrinth of rules and positions to translate and contemplate.

Fortunately, some courts are reining in the overly broad assertions of taxable nexus where purported in-state contacts are "one step removed" from the taxpayer. Despite the states' expanding view of nexus, the U.S. Constitution is still the law of the land. Not every remote, third-party connection to a state justifies taxation of an out-of-state taxpayer.

This article discusses some taxpayer victories in which state taxing authorities and courts have recognized the limits on the reach of nexus and have concluded that certain remote contacts do not justify state taxation.

Background

"Nexus" is a term used to describe the amount and degree of activity that must be present before a state can tax an entity, its property, or certain of its transactions. The ultimate boundary of taxable nexus is set by the U.S. Constitution. The federal constitutional limitation requires a certain level of nexus to justify taxation, as well as fair application of the taxing scheme without discrimination against or excessive burden on interstate commerce.7 That boundary is limited by corresponding state constitutions, state statutes that establish the incidence or basis of the tax, and the rules of allocation and apportionment for interstate commerce.

Nexus is essentially determined on a sliding scale. It is well accepted that an out-of-state company that conducts no business whatsoever in a particular jurisdiction cannot be subject to tax by that jurisdiction. But where is the boundary if a company sells its product over the internet and through common carriers to customers in that jurisdiction, has an affiliate doing business in that jurisdiction, or invests in another business which conducts some level of business in that jurisdiction? These are the issues that taxpayers and states have grappled with for years.

Generally, taxability depends on the specific nature of the contacts with the state, weighed both qualitatively and quantitatively.8 While historically companies could predict their tax footprints by merely reviewing their property and payroll apportionment data, states have become increasingly aggressive in attempts to broaden the definition of "tax nexus," adopting approaches like economic nexus,9factor presence,10 affiliate nexus,11 and click-through nexus,12 to name a few. Still, the lens through which these new approaches must be reviewed requires states to stay within the taxable boundaries established by the U.S. Constitution and the corresponding case law of the U.S. Supreme Court. The state must have substantial nexus with both the particular out-of-state taxpayer and the transaction or property it seeks to tax.13 Not all taxpayers engaged in interstate commerce are taxable in all states.

Constitutional Nexus

Two parallel, yet separate, analyses must be conducted to determine whether a state may constitutionally tax an out-of-state taxpayer. Before any tax can be imposed, the tax must comply with both the due process clause14 and the commerce clause15 of the U.S. Constitution. The due process clause demands certain jurisdictional contacts for taxation, and the commerce clause generally prohibits taxation that unreasonably burdens interstate commerce—both requirements must be met as a prerequisite to taxation.16

To permit taxation, the due process clause demands "some definite link, some minimum connection, between a state and the person, property or transaction the state seeks to tax,"17 as well as a rational relationship between the tax and the "values connected with the taxing State."18 

The commerce clause forbids the levy of any tax that discriminates against interstate commerce or that burdens interstate commerce by subjecting activities to multiple or unfairly apportioned taxation. A tax is valid under the commerce clause only if it:

  •  is applied to an activity with a substantial nexus with the taxing state,
  •  is fairly apportioned,
  •  does not discriminate against interstate commerce, and
  •  is fairly related to the services provided by the taxing state.19  

To determine whether the substantial-nexus requirement is met, the U.S. Supreme Court in Quillheld that at least some physical presence is required to create substantial nexus sufficient to impose a use tax on an out-of-state company and said, "[A] vendor whose only contacts with the taxing State are by mail or common carrier lacks the `substantial nexus' required by the Commerce Clause."20 The Supreme Court has not directly ruled on the requirements of "substantial nexus" since its decision in Quill.

States sometimes fail to recognize the parameters set forth by the U.S. Supreme Court and try to tax taxpayers and transactions that do not meet the requirements of the commerce and due process clauses of the U.S. Constitution. Fortunately, courts are required to uphold these laws. Although state courts may not provide a level playing field for out-of-state businesses to challenge tax nexus, some taxpayers are seeking and finding relief from unconstitutional taxes.

Constitutional Challenge Likely to Succeed

One of the recent notable taxpayer wins on constitutional grounds relates to the egregious use-tax notice and reporting requirements adopted by the Colorado Department of Revenue last year. On Jan. 26, 2011, Judge Robert Blackburn of the U.S. District Court for the District of Colorado granted a motion for preliminary injunction filed by the Direct Marketing Association (DMA), enjoining the department from enforcing its newly enacted notice and reporting requirements.21 In granting the preliminary injunction, Judge Blackburn determined that DMA was likely to succeed on the merits of its commerce clause challenge to Colorado's notice and reporting regime.

The Colorado notice and reporting regime enacted in 2010 targets out-of-state retailers that do not collect and remit Colorado sales tax.22 Under the new law, such out-of-state companies must:

  •  notify Colorado purchasers at the time of any nonexempt purchase that use tax is owed,
  •  send each Colorado purchaser an annual notice by Jan. 31 summarizing the purchaser's Colorado purchases for the preceding calendar year, and
  •  file an annual report with the Colorado Department of Revenue on or before March 1 of each year (starting in 2011) showing the total amount each Colorado purchaser paid for its Colorado purchases.23

Noncompliance leads to significant penalties.24  

DMA challenged the constitutionality of the use-tax notice and reporting requirements, arguing that the new requirements violated the commerce clause of the U.S. Constitution.25 Since companies located in Colorado are not subject to the new reporting requirements,26 the law applies only to out-of-state companies that sell products to Colorado purchasers via interstate commerce. The application of the notice and reporting requirements to out-of-state companies with no presence in Colorado violates the physical-presence requirement set forth in Quill.27

DMA filed a motion for preliminary injunction to prohibit the Colorado Department of Revenue from enforcing the notice and reporting requirements while the constitutional challenge is pending. To succeed in its motion, DMA was required to show that there was a substantial likelihood it would prevail on the merits of the underlying claims.28 Judge Blackburn determined that DMA was substantially likely to prevail, holding that it could likely show that the notice and reporting requirements "impose a burden on interstate commerce that is not imposed on in-state commerce" and that the Colorado Department of Revenue was unlikely to establish a lack of nondiscriminatory alternatives.29 Although remote retailers are not directly required to collect sales and use taxes under the new law, Judge Blackburn found that the requirements to gather, maintain, and report information "likely impose on out-of-state retailers use tax-related responsibilities that trigger the safe-harbor provisions of Quill." 30

The Colorado Department of Revenue initially appealed the decision to the U.S. Court of Appeals for the Tenth Circuit but later voluntarily dismissed the appeal. The parties submitted cross-motions for summary judgment on the commerce clause issues on May 6, 2011. While no one can predict what the court will do, it appears that the taxpayer has the momentum on this one.

Affiliate Nexus Alone Is Not Enough

Another area where taxpayers have had some success in challenging broad nexus assertions is affiliate nexus. Under the affiliate-nexus approach, in an attempt to satisfy the Quill physical-presence requirement, states have asserted that the presence of an in-state company is sufficient to tax an out-of-state affiliate. The U.S. Supreme Court has ruled, however, that mere affiliation with an in-state related party is not sufficient to justify state taxation.31  

In general, the affiliate-nexus assertion may fail either because nexus should be determined separately for each company to avoid discrimination if the state's incidence of tax is imposed separately on a company-by-company basis, or because the in-state affiliate lacks the requisite "unitary" connection to be combined in the taxable group for determining the tax.

One taxpayer litigating against the affiliate nexus approach in a number of states is Barnes & Noble. In the latest decision, a hearing officer of the New Mexico Taxation and Revenue Department concluded that Barnesandnoble.com did not have substantial nexus in the state for gross-receipts-tax purposes, even though an affiliate of Barnesandnoble.com was doing business in the state.32

Barnesandnoble.com is in the business of operating the website and internet business for the Barnes & Noble brand. Barnesandnoble.com is headquartered and conducts its business in New York and has no physical presence in New Mexico; however, an affiliate of Barnesandnoble.com, Barnes & Noble Booksellers Inc., has a number of stores throughout the United States, including three in New Mexico.

The department asserted nexus against Barnesandnoble.com on the basis of its finding that the New Mexico activities of Barnes & Noble Booksellers Inc. should be attributed to Barnesandnoble.com, thus creating nexus under Quill. The department argued for the attribution of nexus on the basis of the close corporate relationship between Barnesandnoble.com and Barnes & Noble Booksellers Inc. and their common ownership, cross-marketing program, book-return policy, and multiretailer gift-card and customer-loyalty programs, among other shared systems.

The hearing officer, however, looked to the fact that Barnesandnoble.com maintained its own books and records, had its own corporate officers who operated the business, maintained separate facilities, and did not intermingle any corporate assets in concluding that nexus could not be attributed. The hearing officer concluded that the evidence was not sufficient to demonstrate that Barnes & Noble Booksellers Inc. created a market in New Mexico for Barnesandnoble.com. The taxpayer's ability to establish and maintain a market is a qualitatively important contact for justifying state taxation.33

Intangible Property Licensing Alone Is Not Enough

Another aggressive approach that states have increasingly adopted is to assert taxable nexus on the basis of income earned from intangible property licensing. More and more, states are jumping to the highly questionable conclusion that even third-party trademark licenses are granted as a tax-avoidance measure.

At least one appeals court has ruled that a related-party license does not create taxable nexus. Seattle may have been a bit chapped when the court of appeals concluded in an unpublished opinion that, contrary to the city's contention, an out-of-state family limited partnership that received royalties from sales of Blistex products did not have nexus with the city, and that therefore Seattle business and occupation tax was not due.34

The taxpayer at issue, Blistex Bracken Limited Partnership, was a family limited partnership that licensed trademarks to Blistex Inc., which used the trademarks to develop, manufacture, market, license, and sell lip balm and skin-care products. Blistex Bracken Limited Partnership was owned by the Bracken family, who had invented the formula for Blistex lip balm and had been licensing the trademarks at issue to Blistex Inc. since 1947.

The partnership was formed in 1984, after the death of one of the key family members, to avoid the hassle of probate and re-registration of the trademark licenses each time an heir died. The partnership, which licensed the Blistex trademark to Blistex Inc., rented an office in downtown Seattle for the purpose of storing the partnership's records and receiving mail but conducted no activity in Seattle apart from receiving payments by mail or wire transfer.

The city conceded that the limited partnership was an estate-planning mechanism, but it also asserted that the partnership was engaged in owning, managing, and maintaining the trademarks in the city. The court, however, concluded that the mere receipt of royalties in the city did not make those royalties taxable. To be subject to tax, the court determined that the partnership had to be engaged in business activities that generated the sales and royalty income. The court found, however, that Blistex Inc., not the partnership, developed, manufactured, marketed, licensed, and sold products using the trademarks and generated the royalty income. The minimal business activities of the family's limited partnership in Seattle were held to be insufficient to justify the city's assessment of business and occupation tax on the income the family received.

Deeming Intangible Licensing to Be Sales of Tangible Personal Property Should Not Affect Taxable Nexus

Like Seattle, New Jersey historically has asserted nexus on out-of-state companies licensing intangible property in the state.35 However, in 2009 the New Jersey tax court held that economic nexus would not be extended to two out-of-state software companies that were selling and licensing software to New Jersey customers, on the basis of its conclusion that the companies were selling tangible personal property, not a software license.36

The cases involved two unrelated software companies, Quark and AccuZIP, whose business activities in New Jersey were limited to the sale of canned software to New Jersey customers. Each sale of software was subject to a licensing agreement, but the consideration paid to Quark and AccuZIP was in the form of a single payment for the sale of software rather than periodic royalties. Unlike AccuZIP, Quark had a regional sales manager in New Jersey for at least some of the years at issue.

The court concluded that the "real object" of the taxpayers' sales of software was the sale of tangible personal property, not a license of intangibles for a royalty. Thus, Quark and AccuZIP were not treated as generating income from the use of intangible property in New Jersey, as they would have been if they had been licensing intangible property or receiving royalties. In reaching this conclusion, the court noted that "Quark and AccuZIP are actual corporations and not holding companies created for the purpose of generating a tax benefit."37

The court ultimately found that Quark was doing business through an in-state representative but that AccuZIP was not doing business in New Jersey because its contacts did not satisfy the substantial-nexus requirement of the commerce clause.38 It is hard to imagine that a court would conclude that the state law fiction which deems a taxpayer's licensed software to be tangible personal property creates a constitutional limitation on the taxation of the income from intangibles.

Investment in In-State Entity Alone Is Not Enough

New Jersey courts also have limited the reach of nexus asserted merely on the basis of investment in a partnership doing business in the state. The New Jersey Superior Court, Appellate Division, recently affirmed a New Jersey Tax Court decision in BIS LP Inc. holding that an out-of-state corporate limited partner of a limited partnership doing business in the state was entitled to a refund of corporation business tax paid because its activities in New Jersey were limited to a passive interest in the partnership.39

In rendering its decision, the New Jersey Tax Court in BIS LP Inc. described in detail the background and ownership of BISYS Group Inc. investments at issue. BISYS Group Inc. provides information-processing and technology-outsourcing services. Beginning in 1999, BISYS Group Inc. conducted an internal reorganization whereby a number of wholly owned limited partnerships were created. One of those partnerships, BISYS Information Solutions LP, was at issue in this case. BISYS Information Solutions held the former BISYS banking information solutions division and conducted business throughout the United States, including in New Jersey.

One of the indirect subsidiaries of BISYS Group Inc., BIS LP Inc., owned the 99 percent limited partner of BISYS Information Solutions. For the years at issue, BIS filed its corporation business tax return as an investment company,40 which meant it was entitled to favorable tax treatment pursuant to New Jersey law.41 The New Jersey Division of Taxation denied BIS's claim of investment-company status on the basis of its conclusion that BIS had a unitary relationship with the business conducted by BISYS Information Solutions. BIS appealed on the basis that it had no constitutional presence in New Jersey.

In New Jersey, an out-of-state limited partner is considered to be doing business in New Jersey if one of the following four prongs is met:

  •  the limited partner is also a general partner of the limited partnership;
  •  the limited partner, in addition to exercising its rights and powers as a limited partner, takes an active part in the control of the partnership business;
  •  the limited partner meets the criteria otherwise set forth in the New Jersey nexus statutes; or
  •  the business of the partnership is integrally related to the business of the foreign corporation.42

The court held that although BIS received 100 percent of its income from its limited partnership interest, it was not a general partner, did not control the business, did not have a place of business in the state, and did not have employees, agents, representatives, or property in the state. Thus, the primary issue was whether BIS and BISYS Information Solutions were integrally related such that tax could be imposed. The court looked at the lack of a unitary relationship between the entities in concluding that BIS did not have nexus. The court concluded that BIS was a passive investor in the partnership and had no control or potential for control of the partnership's business. Thus, BIS did not have nexus with New Jersey.

U.S. Supreme Court Clarifies Constitutional Constraints of States

Although the U.S. Supreme Court has not specifically ruled on the constitutional constraints of "substantial nexus" in almost 20 years, the Court held recently that without sufficient contacts, states are constitutionally prohibited from imposing taxes on intangible income43 and even lack jurisdiction to adjudicate a person's rights and liabilities.44 As noted in MeadWestvaco, the broad constitutional test is "whether the taxing power exerted by the state bears fiscal relation to protection, opportunities and benefits given by the state."45

Under the constitutional constraints of due process, unless a person "engage[s] in … activities in [the state] that reveal an intent to invoke or benefit from the protection of [the state's] laws," the state "is without power to adjudge the [person's] rights and liabilities."46 Merely placing goods in the "stream of commerce" with knowledge that the goods are being marketed in a state does not necessarily confer the state's power to tax,47 the Court concluded. The "principal inquiry" is "whether the defendant's activities manifest an intention to submit to the power of a sovereign."48 The court found that neither the intent to serve "the U.S. market" nor the fact that marketed products "ended up in [the state]" is sufficient to "show that [a taxpayer] purposefully availed itself of the [state's] market" to confer jurisdiction under the due process clause.49

Conclusion

Not all contacts are the same. While states are aggressively expanding their nexus positions, it is important to note that the U.S. Constitution still requires a direct contact between the taxpayer and the state before a state or local tax may be imposed.

The cases discussed in this article are just a few of the taxpayer-favorable decisions, rulings, and settlements in recent years that have rejected derivative, or "one-step-removed," nexus assertions. If there is a nexus approach likely to be reviewed by the Supreme Court, it would seem to be this one-step-removed approach of asserting taxation from mere association. Before conceding questionable taxable nexus, taxpayers are well advised to analyze whether the qualitative nature of their contacts justifies taxability.

 

Copyright©2011 by The Bureau of National Affairs, Inc.



1 See Quill Corp. v. North Dakota,504 U.S. 298 (1992).

 

2 Under the Tax Injunction Act, 28 U.S.C. §1341, state-court decisions generally determine the level of activities deemed to be sufficient nexus for state taxation. However, those decisions are subject to review and reset by the U.S. Supreme Court and, in certain circumstances, the U.S. Congress.

 

3 Compare Borden Chemicals and Plastics L.P. v. Zehnder,726 N.E.2d 73 (Ill. App. Ct. 2000), app. denied,731 N.E.2d 762 (Ill. 2000) (limited partner with no physical presence in Illinois held taxable because it received flow-through earnings from partnership operating in Illinois) with J.C. Penney Natl. Bank v. Johnson,19 S.W.3d 831 (Tenn. Ct. App. 1999), appeal denied (Tenn. S. Ct. May 8, 2000), cert. denied, 531 U.S. 927 (2000) (bank's credit card activities not sufficient for income tax nexus as bank did not have a physical presence in the state); Rylander v. Bandag Licensing Corp., 18 S.W.3d 296 (Tex. Ct. App. 2000) (Texas franchise tax held unconstitutional as applied to a corporation without any substantial physical presence in Texas).

 

4 See Borden Chemicals and Plastics L.P. v. Zehnder,726 N.E.2d at 79-80, citing Hartley Marine Corp. v. Mierke, 196 W. Va. 669, 677, 474 S.E.2d 599, 607 (1996) and Brown's Furniture Inc. v. Wagner, 171 Ill. 2d 410, 433 n.2, 665 N.E.2d 795, 808 n.2 (1996).

 

5 See Mich. Comp. Laws §208.1200 (asserting nexus if over $350,000 of sales into the state); Wash. Rev. Code §82.04.067(1) (asserting nexus if over $250,000 of sales into the states); see also,Colo. Rev. Stat. §39-21-112 (asserting tax notice requirements if no taxable presence).

 

6 See, e.g., KFC Corp. v. Iowa Dept. of Rev., 792 N.W.2d 308 (Iowa 2010) (appeal pending) (asserting income tax on franchisor based on franchisees' sales in Iowa); Revenue Cabinet v. Asworth Corp., Nos. 2007-CA-002549-MR, 2008-CA-000023-MR, slip op., WL 3877518 (Ky. App. 2009), rev. denied (Ky. 2010), cert. denied, No. 10-662 (U.S. Jan. 24, 2011) (asserting income tax based on interest in a partnership doing business in Kentucky).

 

7 See, e.g., Container Corp. of Am. v. Franchise Tax Bd.,463 U.S. 159, 170 (1983); Complete Auto Transit Inc. v. Brady, 430 U.S. 274 (1977).

 

8  See, e.g., Miller Bros. Co. v. Maryland, 347 U.S. 340, 347 (1954); Tyler Pipe Indus. Inc. v. Washington Dept. of Rev., 483 U.S. 232, 250 (1987).

 

9 The notion that a state may exercise its taxing authority over an out-of-state company that has no physical ties whatsoever in the taxing state. See, e.g., Cal. Rev. & Tax. Code §23101(b); Wis. Stat. §71.255(1)(g); Capital One Bank v. Comr. of Rev., 899 N.E.2d 76 (Mass. 2009), cert. denied, 129 S. Ct. 2827 (2009); Lamtec Corp. v. Dept. of Rev., 215 P.3d 968 (Wash. Ct. App. 2009).

 

10 The notion that having a certain amount of property, payroll, or receipts in the state is sufficient to create nexus. See, e.g., Ohio Rev. Code Ann. §5751.01(H); Cal. Rev. & Tax. Code §23101(b)(2).

 

11 The notion that an out-of-state business's affiliation with an in-state business is sufficient for nexus. See, e.g., N.Y. Tax Law §1101(b)(8)(I); Wis. Stat. §7751(13g)(d); Tax Determination No. 08-128, Wash. Dept. of Rev., App. Div. (Jan. 28, 2009).

 

12 The presumption that nexus is created by certain website-linking arrangements. See, e.g., N.Y. Tax Law §1101(B)(8)(VI); N.C. Gen. Stat. §105-164.8(b); R.I. Gen. Laws §44-18-15.

 

13 MeadWestvaco Corp. v. Illinois Dept. of Rev., 553 U.S. 16, 24 (2008).

 

14 U.S. Const. amend. XIV, §1 ("No State shall … deprive any person of life, liberty, or property, without due process of law").

 

15 U.S. Const. art. I, §8 ("The Congress shall have Power … To regulate Commerce … among the several States … .").

 

16 See Quill Corp. v. North Dakota, 504 U.S. at 305; see also Int'l Harvester Co. v. Dept. of Treas., 322 U.S. 340, 353 (1944) (Rutledge, J., concurring in part and dissenting in part).

 

17 Quill, 504 U.S. at 306, quoting Miller Bros. Co. v. Maryland, 347 U.S. at 344–45.

 

18 Id., quoting Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273 (1978).

 

19 Complete Auto Transit, 430 U.S. at 279.

 

20 Quill, 504 U.S. at 311.

 

21 Direct Mktg. Assn. v. Huber, No. 10-CV-01546-REB-CBS, 2011 WL 254940 (D. Colo. Jan. 26, 2011).

 

22 See H.B. 10-1193, 67th Gen. Assem., 2d Reg. Sess. (Colo. 2010) (amending Colo. Rev. Stat. §39-21-112).

 

23 Colo. Rev. Stat. §39-21-112(3.5)(c)(I), (d)(I)(A) and (d)(II)(A).

 

24 39 Colo. Regs. §21-112.3.5(2)(f)(i), (3)(d)(i) and (4)(f)(i).

 

25 See generallyPlaintiff's Original Complaint, Direct Mktg. Ass'n v. Huber, No. 10-CV-01546-REB-CBS, 2011 WL 254940 (D. Colo. June 30, 2010) ("Plaintiff's Original Complaint").

 

26 The law applies only to "non-collecting retailers," which are those retailers that sell goods to Colorado purchasers and do not collect Colorado sales or use tax. 39 Colo. Regs. §21-112.3.5.

 

27 Plaintiff's Original Complaint, at ¶¶ 65–76.

 

28 Direct Mktg. Assn., 2011 WL 254940, at *2 (citing Prairie Band of Potawatomi Indians v. Pierce, 253 F.3d 1234, 1246 (10th Cir. 2001)).

 

29 Id. at *4.

 

30 Id. at *5.

 

31 See MeadWestvaco Corp., 553 U.S. 16 (2008); Allied-Signal Inc. v. Dir., Div. of Taxn., 504 U.S. 768, 778 (U.S. 1992) (distinguishing Quill).

 

32 In re Barnesandnoble.com LLC, N.M. Taxn. and Rev. Dept., No. 11-10 (4/11/11).

 

33 See Tyler Pipe Indus. v. Washington Dept. of Rev., 482 U.S. 232, 250 (1987) (stating that a non-employee's activity must be "significantly associated with the taxpayer's ability to establish and maintain a market in [the] state for [its] sales" to justify taxation).

 

34 Blistex Bracken v. Seattle, No. 62006-1-I, 152 Wn. App. 1019 (Wash. Ct. App. 2009).

 

35 See, e.g., Lanco Inc. v. Dir., Div. of Taxation, 188 N.J. 380 (N.J. 2006), cert. denied, 551 U.S. 1131 (2007).

 

36 See AccuZIP, Inc. v. Dir., Div. of Taxation,and Quark Inc. v. Dir., Div. of Taxation, 25 N.J. Tax. 158 (2009).

 

37 AccuZIP, 25 N.J. Tax. at 173.

 

38 AccuZIP, 25 N.J. Tax. at 187-88.

 

39 BIS LP Inc. v. Dir., N.J. Div. of Taxn., N.J. Super Ct. App. Div., No. A-1172-09T2, 8/23/11 (unpublished), aff'g 25 N.J. Tax. 88 (N.J. Tax 2009).

 

40 In New Jersey, "investment company" is generally defined as a corporation whose business consists, to the extent of at least 90 percent, of holding, investing, and reinvesting in stocks, bonds, notes, mortgages, debentures, patents, patent rights, and other securities for its own account. SeeN.J. Rev. Stat. §54:10A-4. More specific rules about the business and assets of investment companies are set forth in the New Jersey regulations. SeeN.J. Regs. §18:7-1.15(f).

 

41 For qualifying investment companies, the corporation business tax is based on 40 percent of entire net income and 40 percent of entire net worth. N.J. Rev. Stat. §54:10A-5(d).

 

42 N.J. Regs. §18:7-7.6(c).

 

43 See MeadWestvaco Corp., 553 U.S. 16 (2008).

 

44 See J. McIntyre Machinery Ltd v. Nicastro, 131 S. Ct. 2780 (U.S. 2011); Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (U.S. 2011).

 

45 MeadWestvaco Corp., 553 U.S. at 24 (citing Quill and earlier income tax and property tax cases).

 

46 J. McIntyre Machinery Ltd., slip at 12.

 

47 Id.at 11.

 

48 Id. at 7 (emphasis added).

 

49 See id.at 11.